What will G20 bring with it?

Question

What is your outlook for going forward with regards to rates and what could happen over the weekend with the G20?

Answer

First part of that question. Next Tuesday the RBA meets again there is growing expectation that rates will be cut by another 25 basis points. It'll be the first back to back rate cut that we've seen from the RBA since the start of the GFC and that in itself is quite an interesting story. There is actually even growing belief that we could see three of them in a row.

So August is therefore also in play to see rates fall .75 of 1% whatever happens. It is clear the RBA is stimulating the economy. It is clear the RBA will cut rates whether it's July or August, it will happen again and they are a little bit concerned about the slowdown that has happened in the last half of FY19. That is clear. What is also interesting that's coming out of all of this is that there is starting to be green shoot signs that it's starting to turn around and that's the other thing about this which is going to probably most likely come to fruition in more numbers in October, December or probably more likely February, March next year. So there is signs to be okay with it. But just be aware things are falling. It therefore will probably be a positive for equities. We've seen since the GFC that falling monetary policy is certainly one way of actually stimulating growth and growth in wealth and that tends to be the easiest way because it is liquid being the equity market.

So the question that I've been getting a lot of the last couple of weeks is yes, the economy is slowing down and yes, the RBA is cutting rates. What does that mean for me? Well, it could mean two things. Yes, it could mean you could go into property because property prices have obviously become more attractive with a lower rate of borrow, but also it's likely that equities will continue their current trend and what we've seen in the past around that space. The other part of that question was around the G20 this weekend, does President Xi's and Trump's meeting mean a significant shift? Probably not. Feels more political than it feels actually structural. There's still a long way to go in that space and that's the only other part of this is that what is being impacted by this whole us China trade war isn't necessarily physical numbers that you can see on economics.

It's confidence and particularly in business confidence, capex and future capex has been significantly hit by this in the US and even here in Australia. And that's where you needed to change and why we needed to probably come to the end as fast as we possibly can because until business starts spending, that's when you’re actually going to see a change around it in the economy and that's when the RBA’s want of getting employment moving and therefore wages moving will actually filter through.

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